Kissing Frogs

Viral Loops: a Love Story

Over at TechCrunch guest blogger Adam Penenberg as put part of his new book Viral Loops up. It is the story of how Tim Draper got the viral loop into Hotmail. Given that investors love to see viral marketing theses days it is nice to see that one of the earlier loops was brought about by VC. 

At the next meeting at DFJ Tim Draper once again pushed the two young entrepreneurs to insert a tagline into each message. Bhatia and Smith were adamant about not adulterating email. It just wasn’t done. They would feel like they were polluting emails with advertising, and what about privacy issues? If someone is adding a tagline what else were they doing? A user would wonder what else they had access to and they were also fairly certain it was unethical. But Draper wouldn’t let it go. The benefits, he contended, far outweighed the risks. If they were predicating their entire business on the size of their user base, they should be doing everything in their power to increase it as fast as possible. “P.S. I love you. Get your free email at HoTMaiL.” The more he said it, the more he liked it. (via TechCrunch)

Apparently this story was under contention for a while until the authors of Founders at Work dug up some corroborating evidence. So here is at least one case where the VC really did contribute more than just capital.

The Long Tail Before

<Note: I began this post in August and then forgot about it. It fit's in very nicely now that I'm reading The Long Tail>

Neal Stephenson wrote a great short story Spew back in 1994 where the central premise is that the long tail is incredibly important.

One day young Adderson was checking out a Profile that didn't fit in with established norms, and by tracing the subject's social telephony web, noticed a trend: Post-Graduate Existentialists who started going to church. You heard me: Adderson single-handedly discovered the New Complacency.

It was an unexploited market niche of cavernous proportions: upwards of one-hundredth of one percent of the population. Within six hours, Adderson had descended upon the subject's moho with a Rapid Deployment Team of entertainment lawyers and development assistants and launched the fastest-growing new channel ever to wend its way into the thick braid of the Spew.

It's a nice little story, and shows how far ahead of the curve Stephenson really was.

An Insider's Thought's on Derivatives and Moral Hazard

Traders Guns & Money by Satyajit Das, is essentially a collection of inside stories and a veteran's thoughts about the derivative industry. It is so timely because though it was first published in 2006 many of the discussions directly apply to the current crises. Das discusses WMD's and gives excellent descriptions of the issues that are are currently wreaking havoc on the market. Given that I've been posting a bit about moral hazard I found this to be a nice summation.

Traders risk the bank’s capital: they literally bet the bank, at least up to their limits. If they win then they get a share of the winnings. If they lose, then the bank picks up the loss. Traders might lose their jobs but the money at risk is not their own, it’s all OPM – other people’s money. What if the losses threaten the bank’s survival? Most banks are now ‘too big to fail’ and they can count on government support. Regulators are way about ‘systemic risk’, and no regulator with an eye to their place in history wants the banking system to be flushed down the toilet on their watch. Traders can always play the systemic risk trump card. It is the ultimate in capitalism – the privatization of gains, the socialization of losses. (p 151)

And now the it looks like we might get the chance to bail out a few trillion in losses due to Fanny and Freddie. The agency problem is just killing us since the executives won't be giving back their past bonuses, it pays for them to bet big and let the government bail them out.